If you've heard the term "escrow account" but don't know what it means, you're not alone. Unless you've purchased a home before like most people, you probably know very little about escrow. To better acquaint you, here are the basics.

An escrow account is an account designed to hold money and/or set aside money for your property taxes and homeowner's insurance (also flood insurance, if applicable) that is collected with your monthly home loan payment. The escrow account ensures that the money is available to cover these costs when they're due, and it removes the risk of lapsed homeowner's insurance coverage or delinquent taxes. Two key benefits of an escrow account are your escrowed payments will be made on time, and you don't have to worry about coming up with several large, lump-sum payments throughout the year - the money will already be there when the payment is due.